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Sony EyeToy – Harvard Case

Being that SCEE is responsible for the highly successful EyeToy product, it is now faced with several challenges surrounding maintaining that success, creating an ongoing market for future EyeToy software, and commercializing the hardware/software and marketing it cost-effectively. Specifically, SCEE needs to develop a marketing strategy that is concerned with the EyeToy’s

appropriate development pipeline, future EyeToy software development and releases, and expanding the EyeToy market. The EyeToy is an important product for Sony because it fit with the strategic objectives of the SCEE, as Phil Harrison said, “what we strive for in developing games- it’s be first or be best.” Not only was the EyeToy technologically innovative, but it also proved to be a commercial success. The EyeToy is a phenomenal product for Sony because it has a wider demographic than other games in the market. For SCEE, the EyeToy represented a golden opportunity to profit from the development and marketing of more games utilizing the new camera hardware. However, sales of the second EyeToy game, Groove, were disappointing. This was due to the bundling, marketing, and pricing strategy of Groove (which I will later discuss further). SCEE will have to reevaluate the EyeToy line to formulate an appropriate target market, development, bundling, pricing, and marketing strategies that will expand the EyeToy market, cost-effectively develop games to market, and successfully market and sell said games for maximized profits.

Firstly, SCEE must select the appropriate target market by evaluating the video-game consumers, the company’s position compared to its competitors, and the opportunities available. The gaming market is dominated by male’s aged 16-30. Sony’s PlayStation2 is the leading console. The situation for SCEE is strong, and full of opportunity, due to the strength of the PS2 console and its current customer base; worldwide there are 70 million PS2 consoles (compared to only 15million Xbox and/or GameCubes), and there are 1 million online subscribers. Thus, while the new EyeToy technology has the ability to reach younger, older, and female consumers, that segment is nowhere as large, nor as profitable as the traditional hardcore gamers, the customer base that they already have. However, the EyeToy is nontraditional and is the opportunity to appeal to the nontraditional audience. In 2003, of the top 10 Video-Game Console Titles 6 (including the top 5) were rated ‘Everyone’ and only 1 title was rated ‘Mature (17+)’; that being said, it is worthwhile for SCEE to go after the ‘Everyone’ segment of the market (children and families). Given that hardcore gamers are the largest segment, SCEE has to successfully market the EyeToy to these young men, in addition to any expansion of the market that they attempt to create.

Secondly, what may be the most important factor for the success of the EyeToy product will be the development of further EyeToy software. Having a variety of EyeToy games consistently being released in the market is what will prevent the EyeToy from becoming a fad. One of SCEE’s critical moves was releasing the code for EyeToy programming and supporting the efforts of third party developers. This will increase the number of games with EyeToy capabilities on the market, thereby increasing the consumer awareness. Moreover, if a third party game is popular, that will boost EyeToy sales; at the same time, if a third party title is unsuccessful, there was no financial loss for SCEE, nor a loss in Sony’s reputation. Additionally, the games developed by third parties that are “EyeToy enhanced” will satisfy the traditional hardcore gamers (likely sports). Furthermore, regarding in-house development, the SCEE currently has 4 EyeToy projects in the works: Play2, Chat, Kinetic, and SingStar. Like EyeToy Play, these games are not for the traditional gamer, Kinetic and SingStar specifically, are targeted towards women. With the third party developers releasing titles for the traditional gaming market, SCEE is free to handle the task of expanding the market demographics; using 3 of these development projects, SCEE will expand the gaming market to include young children, their parents, and women aged 16-35. EyeToy Play2 is an unnecessary title as: this has been done before; the consumers did not appreciate all 12 games on Play. In the next year, SCEE should release two of these titles: EyeToy Chat and Kinetic; by spacing out the release dates it shows that Sony is committed to the new EyeToy technology and to releasing titles specifically to cater to this new audience. The SingStar game should be more heavily invested in and further developed. The SingStar game will be SCEE’s next big hit title; with a greater budget, the most popular song titles will be incorporated into the game. By following this development strategy, SCEE will be able to create and sustain an ongoing market for EyeToy software, in addition to, enlarge the size of the market (to include women and children) and capture all of the market that they create.
Thirdly, an important consideration for the future of the product is the bundling strategy of the EyeToy’s hardware and software components. With the next-generation of PlayStation consoles to be released in 2005-06, the EyeToy hardware will be bundled with the new consoles. With EyeToy’s as a standard in the next generation console, it will be impossible to consider the EyeToy a fad; this may also convert current PlayStation customers who are not EyeToy owners through upgrading of their consoles. Currently the camera hardware is only available as bundled with the Play software. The camera hardware will be made available as a stand-alone product. This is because consumers found the Play game to be rather juvenile, and as such it will be targeted primarily to the non-traditional audience (families and children). Therefore, accordingly, a stand-alone EyeToy will be sold as an alternative for the hardcore gamers (who will be buying “EyeToy Enhanced” games as developed by third parties) and women aged 16-35 may also opt for the stand-alone EyeToy when the games Kinetic and SingStar are released. Furthermore, to continue to appeal to the new segment of young families with children and females, the EyeToy games Play will continue to be sold as a bundle with the camera hardware. The strategy for bundling outlined above will appeals to the targeted segments of the market and will transform the EyeToy from what may be a fad, to permanent PlayStation technology.

The next factor to consider is the pricing strategy for the EyeToy and the software that will be released. The camera hardware and Play game bundle is currently priced at approximately ?60 for the consumer and the Groove game has a price of ?40. Sell-in of the EyeToy Play bundle as at February 2004 exceeded 1.5million units and sales are steadily growing, so there is no need to lower the price of the bundle at this point in time. The pricing for the stand-alone EyeToy is very strategic (see Appendix 1). It will be priced at ?60; being priced the same as the bundle, SCEE does not expect to sell very many stand-alone units. The reason why SCEE would want to do this is to imply to the consumers that the EyeToy hardware costs ?60 and that the software game Play is a collection of 12 mini-games created as an introductory free-gift.

This clears up some confusion customers had with the price of Groove, only a game, at ?40. In addition, the EyeToy Chat and Kinetic software will also be priced at ?40. SingStar, with further investment is going to be developed and marketed to be the next hit game developed by SCEE, and as such, will be priced higher at ?50. There is strategy in the release of the stand-alone product, and that is in the pricing, with this strategy SCEE can continue to maintain the pricing and sell more units.

SCEE used an effective sampling-driven marketing campaign to introduce the EyeToy Play to the European market, the use of EyeToy demo units was a critical decision and this aspect of the campaign will be kept; however, into the future, SCEE will also use more traditional methods of marketing. Hit video games tend to “generate 90% of their sales in the first six weeks,” Harrison once stated, EyeToy Play, on the other hand, has had slow and steady growth. This implies that the new technology is spreading slowly by word-of-mouth, by people trying the new technology on their own time (at the mall, video game store, or a friend’s) and then going out to purchase the product. It is for this reason that the EyeToy demo units will remain a fundamental part of the EyeToy marketing strategy, they offer “potential users the opportunity to try the product.” Moreover, for the upcoming releases of EyeToy software, traditional TV ad campaigns will be run targeting the ‘Everyone’ audience. Furthermore, the ads will remind consumers to go to the EyeToy website to find a demo unit near them. Additionally, for the upcoming year, point-of-sale materials will remain for the EyeToy product; the following year, the point-of-sale materials will be specifically marketing the release of the SingStar game. This marketing strategy will continue to expand the EyeToy and PlayStation market and will be effective in increasing unit sales while also being cost-effective.

The cost-effectiveness of this entire marketing strategy is high as sales are expected to continue to rise and the cost side remains as budgeted. The suggested pricing strategy yields a large profit for SCEE now, and SCEE retains the ability to lower the price in the future when sales begin to slow. The new budget for the EyeToy pipeline will be raised to ?15million to be allocated amongst the development of the 3 in-house games. SingStar is to be a hit and as such will get ?10million of the budget towards development. Kinetic will be allocated ?3million.

Lastly, EyeToy Chat, for the 1 million online subscribers, will be allocated ?2million. These games require large investments because they are going to bear the PlayStation name, and they will be competing with the strong third party developer titles. Furthermore, Sony will receive additional income from the third party developers, as they will be paying royalties. This budget will yield great profits and ensure that SCEE’s titles remain “first or… best” and competitive in the video-gaming market.
This marketing plan solves the concerns for SCEE that arose due to the disappointing sales of the EyeToy Groove. Firstly, EyeToy Groove was released 4 months after the EyeToy Play, and being that it was not sold as a bundle, it was only being sold to the customers who had already bought the EyeToy Play bundle (or forced customers to buy both). Secondly, the price of Groove was ?40, and consumers did not know why Groove cost so much when the EyeToy bundle contained 12 mini-games and the camera hardware for only ?20 more. SCEE failed to properly market EyeToy Groove; the marketing campaign for Groove was an extension of the EyeToy Play where as it should have highlighted its special features. Specifically, Hardy was correct to claim that Groove should have been marketed based on the quality and quantity of licensed music in the game, as well as the dancing and party aspect of it, not the interact with your TV, which was similar to the EyeToy Play campaign. The lesson to be learned from the failure of EyeToy Groove is that the marketing campaigns must now be specific to the game that they are marketing.

In conclusion, with sales for EyeToy Play in excess of 2.5million units in the SCEE territories (as of Feb. 2004), and only 100,000 units of Groove sold, SCEE needed to reconfigure the EyeToy marketing strategy and fast. With this marketing strategy, SCEE will be able to establish that the EyeToy is not a fad. They will create and sustain an ongoing market for EyeToy’s and EyeToy software. Furthermore, this will be done profitably and cost-effectively for the benefit of SCEE and SCEI. WORD COUNT: 1944

Appendix 1:
Strategic pricing, like the concept that I proposed in this case, was taught to me by Prof. Hawkins with the case of Williams-Sonoma.

Williams-Sonoma sold two types of toasters one for a low price, $50, and one for a higher price, $150.
They found that the majority of toasters being sold were of the low priced type.
To change this, they introduced a ridiculously high priced unit, $350.
The intention of doing so was not to sell the units for $350, but to sell more of the $150 unit.
This strategic pricing strategy worked for Williams-Sonoma, and as such I applied a similar strategy to this case.